The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2020 for the years 2020 and 2019, and the income statements for the years ended October 31, 2019 and 2020, are presented below.

COOKIE & COFFEE CREATIONS INC.

Balance Sheet

October 31

Assets		2020		2019
Cash		$ 22,324		$ 5,550
Accounts receivable		3,250		2,710
Inventory		7,897		7,450
Prepaid expenses		5,800		6,050
Equipment		102,000		75,500
Accumulated depreciation		(25,200)		(9,100)
Total assets		$116,071		$88,160
Liabilities and Stockholders Equity
Accounts payable		$ 1,150		$ 2,450
Income taxes payable		9,251		7,200
Dividends payable		27,000		27,000
Salaries and wages payable		7,250		1,280
Interest payable		188		0
Note payablecurrent portion		4,000		0
Note payablelong-term portion		6,000		0
Preferred stock, no par, $6 cumulative
3,000 and 2,800 shares issued,
respectively		15,000		14,000
Common stock, $1 par25,180
shares issued		25,180		25,180
Additional paid in capitaltreasury stock		250		250
Retained earnings		20,802		10,800
Total liabilities and stockholders equity		$116,071		$88,160

COOKIE & COFFEE CREATIONS INC.

Income Statement

Year Ended October 31

	2020		2019
Sales	$485,625		$462,500
Cost of goods sold	222,694		208,125
Gross profit	262,931		254,375
Operating expenses Salaries and wages expense	147,979		146,350
Depreciation expense	17,600		9,100
Other operating expenses	48,186		42,925
Total operating expenses	213,765		198,375
Income from operations	49,166		56,000
Other expenses Interest expense	413		0
Loss on disposal of plant assets	2,500		0
Total other expenses	2,913		0
Income before income tax	46,253		56,000
Income tax expense	9,251		14,000
Net income	$ 37,002		$ 42,000

Additional information:

Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semi-annual payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance.

1. Prepare a horizontal analysis of the income statement for Cookie & Coffee Creations Inc. using 2019 as a base year. Also, prepare a vertical analysis of the income statement for Cookie & Coffee Creations Inc. for 2020 and 2019.

2. Comment your findings.

3. What would justify a decision by Cookie & Coffee Creations Inc. to buy the additional equipment? What alternatives are there instead of bank financing?